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Courthouse News Service

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IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
____________________________________
REYNALDO REYES :
on behalf of himself and all :
others similarly situated, :
:
Plaintiff : CIVIL ACTION NO.
:
v. :
e
:
ic
ZIONS FIRST NATIONAL BANK, :
rv
NETDEPOSIT, INC. and MP :
TECHNOLOGIES d/b/a : JURY TRIAL DEMANDED
Se
MODERN PAYMENTS, TELEDRAFT, :
INC., NATIONAL PENN BANK, :
HARLEYSVILLE NATIONAL BANK, :
WELLS FARGO BANK, N.A., and :
WACHOVIA BANK, N.A. :
s
ew
Defendants :
____________________________________:
N
COMPLAINT – CLASS ACTION
Plaintiff Reynaldo Reyes brings this action pursuant to RICO, 18 U.S.C.
se
§1964(c), on behalf of himself and all others similarly situated. Plaintiff seeks to recover
ou
treble the damages he and the members of the Class incurred as a result of defendants’
rth
violations of 18 U.S.C. §§1962(c) and (d) whereby moneys were unlawfully, fraudulently
and without authorization withdrawn by fraudulent telemarketers from checking accounts
ou
of plaintiff and the members of the Class and transferred to offshore Caribbean, Canadian
C
and Indian bank accounts, and in support hereof, avers:

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THE PARTIES
1. Plaintiff Reynaldo Reyes is an individual residing in Maple Shade, New Jersey.
He brings this action on his own behalf and on behalf of the class alleged herein.
2. Defendants Zions National Bank (“Zions Bank”) is a national bank with its
principal place of business in Salt Lake City, Utah. Zions National Bank is a wholly
owned subsidiary of Zions Bancorporation.
3. Defendant NetDeposit LLC. (“ND”) is a Nevada limited liability corporation,
with its principal place of business in Salt Lake City, Utah, and is a payment processor.
ND is a wholly owned subsidiary of Zions Bancorporation.
4. Defendant MP Technologies d/b/a Modern Payments (“MP”) was a payment
processor. MP was a wholly owned subsidiary of Zions Bancorporation. MP was merged
into or otherwise combined with ND sometime in 2008.
5. Defendants Zions Bank and MP, aware that telemarketers, including the
Telemarketers identified below, and individuals associated with them, were engaged in
telemarketing schemes to defraud consumers, conducted an enterprise through a pattern
of racketeering activity, and conspired to do so, by processing and initiating ACH
transactions, opening accounts and clearing millions of dollars in ACH transactions for
the benefit of the telemarketers, including the Telemarketers and individuals identified
below, and by facilitating the transfer of those fraudulently obtained funds to offshore
accounts in the Caribbean, Canada and India. Defendants Zions Bank and MP knew that
the ACH transactions violated NACHA rules by which defendant Zions Bank was bound,
and that a significant number of the ACH transactions were initiated based upon banking
information fraudulently procured by telemarketers, including the Telemarketers
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identified below; that such ACH transactions were frequently used to advance fraudulent
telemarketing schemes; and that defendant Zions Banks’ own retail customers had been
victims of such schemes. Defendant Zions Bank also knew, or under “Know Your
Customer” requirements should have known, that some of the telemarketers had migrated
from other fraudulent payment processors, including Payment Processing Center, LLC
(“PPC”) and its predecessor Netchex, after that company was shut down by the United
States Department of Justice for facilitating telemarketing fraud in an action in the United
States District Court for the Eastern District of Pennsylvania, and Amerinet after that
company, in an action brought by five state Attorneys General, was compelled to make
refunds to victims of telemarketing fraud. Moreover, defendants MP and Zions Bank
continued to provide such payment processing and banking services to fraudulent
telemarketers, including the Telemarketers identified below, even after Wachovia Bank,
N.A., another national bank, was sued in a class action in the Eastern District of
Pennsylvania, for engaging in the same conduct, an action that received national
publicity.
6. Defendant Teledraft, Inc. is a Delaware corporation, with its principal place of
business in Tempe, Arizona. Teledraft is, and at all times relevant hereto was, a payment
processor that processed transactions for fraudulent telemarketers, including some or all
of the Telemarketers identified below, after those telemarketers were no longer serviced
by defendant MP.
7. Defendant National Penn Bank is a national bank and a wholly owned
subsidiary of National Penn Bancshares, Inc. Its principal place of business is in
Boyertown, Montgomery County, Pennsylvania.
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8. Defendant Harleysville National Bank is a national bank and a wholly owned
subsidiary of Harleysville National Corporation. Its principal place of business is in
Harleysville, Berks County, Pennsylvania.
9. Defendant Wells Fargo Bank, N.A. is a national bank and a wholly owned
subsidiary of Wells Fargo & Co. In January, 2009, Wells Fargo & Co. acquired defendant
Wachovia Bank, N.A., a national bank. Wells Fargo Bank has its principal place of
business in San Francisco, California. Wachovia has its principal place of business in
Charlotte, North Carolina.
10. The Defendants identified in paragraphs 7-9 hereof (collectively the “Bank
Defendants”) conducted an enterprise and conspired with defendants Zions Bank and MP
by opening accounts for one or more of the Telemarketers, receiving funds into those
accounts from defendant MP, and by facilitating the transfer of the fraudulently obtained
funds in those accounts to offshore accounts in the Caribbean, Canada and India.
Defendants National Penn, Harleysville, Wells Fargo and Wachovia knew, or under
“Know Your Customer” requirements applicable to national banks reasonably should
have known, that their depositors were telemarketers and that the Office of the
Comptroller of the Currency considered telemarketers to be high risk accounts, whose
frequent wire transfer of funds to offshore accounts was evidence of fraudulent activity
and money laundering.
OTHER PERSONS AND ENTITIES
11 The “NHS/PHS” group of telemarketers consists of the following:
(a). NHS Systems, Inc. (“NHSI”), d/b/a National Healthcare Solutions
(“NHS”) and National Health Net Online (“NHNO”), is a Pennsylvania corporation
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formed in 2006, with its principal place of business in Collegeville, Pennsylvania in this
district. NHSI is a telemarketer. At all times relevant hereto NHSI has fraudulently
telemarketed one or more products or services, including non-existent government grants
and worthless discount health service programs.
(b). Physician Health Service, LLC (“PHS”), d/b/a American Health
Benefits On Line (“AHBO”), is a Missouri limited liability company formed in May
2007, with its principal place of business in Florida, and is affiliated with or a sister
company of NHSI. PHS is a telemarketer. At all times relevant hereto PHS has
fraudulently telemarketed one or more products or services, including worthless discount
health service programs.
(c). Harry F. Bell, Jr. is an individual, is President of NHSI and resides in
this district. At all times relevant hereto, Bell, acting alone and in concert with others, has
formulated, directed, controlled and/or participated in the acts and practices of NHSI,
including those set forth in this Complaint. Bell, acting alone and in concert with others,
has also formulated, directed, controlled and/or participated in the operation and
management of PHS, including registering its web-site using an NHSI Visa debit card for
payment.
(d). Health Management, LLC is a Missouri limited liability company
formed in late 2007. In February 2008, Health Management took over the customers of
NHSI. Health Management is a telemarketer and has continued the fraudulent practices
of NHSI.
(e). Donna Newman is an individual and is President of PHS and Health
Management. At all times relevant hereto, Newman, acting alone and in concert with
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others, has formulated, directed, controlled and/or participated in the acts and practices of
PHS and Health Management, including those alleged in this Complaint. Newman has
also provided substantial services to NHSI, including retrieving its mail from a mail-drop
and opening a mail-drop for it at the same address as a PHS mail-drop.
(f). John E. Bartholomew is an individual. At all times relevant hereto,
Bartholomew, acting alone and in concert with others, has formulated, directed,
controlled and/or participated in the acts and practices of NHSI and PHS, including those
alleged in this Complaint. Bartholomew registered an NHNO website and dealt with its
former mailing agent. Bartholomew also arranged for a company registered in his name
to allow AHBO to use a postage permit registered in that company’s name. Bartholomew
is also the president of Interface Management, Inc. d/b/a Galaxy Member Benefits
(“Galaxy”).
(g). Nicole Bertrand is an individual and resident of Montreal, Quebec,
Canada. She has served as the primary contact between the NHS/PHS enterprises,
including NHSI, Physician Health Service, Health Management, Physician Health
Systems and PHS Enterprises/Plus Health Savings, and their payment processors,
including MP and Teledraft. Bertrand was a principal of First National Health Care
Benefits, a fraudulent telemarketer identified in the Wachovia case described in
paragraphs 5 and 54(j) hereof. Bertrand was also a defendant in an action brought by the
New York Attorney General against Alini International Marketing alleging fraudulent
telemarketing of credit cards, and is subject to a permanent injunction and criminal and
civil contempt orders in that case.
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(h). Barry Kirstein is an individual and resident of Montreal, Quebec,
Canada. He and Bertrand live together, and Bertrand defers to Kirstein on matters alleged
in this complaint. Kirstein is the ranking authority in the NHS/PHS enterprises, and
together with Bertrand he has served as the primary contact between the NHS/PHS
enterprises, including NHSI, Physician Health Service, Health Management, Physician
Health Systems and PHS Enterprises/Plus Health Savings, and their payment processors,
including MP and Teledraft. Kirstein was a principal of First National Health Care
Benefits, a fraudulent telemarketer identified in the Wachovia case described in
paragraphs 5 and 54(j) hereof.
(i). Plus Health Savings, Inc. is a Pennsylvania corporation formed in
2007, with its principal place of business in Collegeville, PA, in this district. It has the
same address as NHSI. It was formed by Bell on instructions from Bertrand and Kirstein.
Plus Health Savings took over the customers of PHS Enterprises, is a telemarketer and
has continued the fraudulent practices of PHS Enterprises.
(j). Physicians Health Systems, Inc. is a Delaware corporation and shares
the same address as NHSI in Collegeville, PA in this district. It also uses the same
fictitious name – AHBO – as American Health Services. Physicians Health Systems is a
telemarketer. At all times relevant hereto Physician Health Systems has fraudulently
telemarketed one or more products or services, including worthless discount health
service programs.
(k). 6676529 Canada, Inc. (“6676529”) is located in Montreal, Quebec,
Canada. Bertrand is President of 6676529. Bell, on behalf of NHSI, contracted with
6676529 to manage the affairs of NHSI. Funds fraudulently obtained by NHSI from
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plaintiff and the members of the Class were then transferred to Canadian accounts
maintained by 6676529.
(l). “Dannie Boie” (“Boie”) is the name used by a person whose identity is
unknown. Boie is believed to operate from Las Vegas, Nevada and/or the Caribbean
nation of St. Lucia. Boie has acted as a primary contact and operational manager for the
NHS/PHS scheme. He is the author and recipient of numerous relevant email
communications, and has acted as the primary contact for multiple vendors to the
NHS/PHS scheme telemarketers. He has also acted on behalf of First Step Management,
Gold Dot and Nevada Business Solutions, identified below.
(m). PHS Enterprises is a Nevada corporation formed in December 2006.
In January 2007 it opened a payment processing account with defendant MP, at
approximately the same time as NHSI did so. Bertrand and Kirstein were the primary
contacts between PHS Enterprises and MP. PHS Enterprises is a fraudulent telemarketer.
(n). First Step Management, Inc. is located in the Caribbean nation of St.
Lucia. It has received in St. Lucia over $1 million dollars of funds fraudulently obtained
by NHS/PHS from plaintiff and the members of the Class. It purports to provide
information concerning United States Government grants and health care services, both
of which have been “products” or “services” fraudulently marketed by telemarketers,
including the Telemarketers.
(o). Gold Dot, Inc. is located in the Caribbean nation of St. Lucia. It has
the same address as First Step Management. It purports to provide internet sales and
telemarketing services. Gold Dot has received in St. Lucia over $100,000 of funds
fraudulently obtained by NHS/PHS from plaintiff and the members of the Class..
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(p). Linke Jn Paul (“Linke”) is an individual who resides in Las Vegas,
Nevada and/or St. Lucia. He is the sole director of First Step Management, and one of the
two directors of Gold Dot.
(q). Tasha Jn Paul (“Tasha”), formerly known as Tasha Swensen, is an
individual who resides in Las Vegas, Nevada and/or St. Lucia. She is one of the two
directors of Gold Dot.
(r). Nevada Business Solutions, Inc. is a Nevada corporation formed on
May 27, 2008. It shares the same address as PHS Enterprises, and is a telemarketer. In
July 2008, after negotiations it which it was represented by Boie, Nevada Business
Solutions entered into a contract by which thousands of consumers were to be enrolled in
and charged for a worthless medical discount program. Those consumers’ names were
derived from a combined list of victims of the NHS/PHS scheme, and Nevada Business
Solutions was merely a vehicle to resume charging their accounts after a TRO was
entered in the action described in paragraph 12 below.
12. NHS, PHS, Bell, Newman and Bartholomew were all named as defendants in
the case of Federal Trade Commission v. NHS Systems, Inc., et al, Civil Action No.
08CV2215, United States District Court for the Eastern District of Pennsylvania, in
which they were alleged to have engaged in fraudulent telemarketing. A consent
Preliminary Injunction was entered in that case on June 10, 2008. The FTC subsequently
identified additional entities and persons who were involved in that telemarketing scheme
and/or continued it after entry of the preliminary injunction, using different names and
entities. The FTC therefore amended its complaint to add those persons and entities
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identified in paragraphs 11(g)-(r) hereof as defendants and obtained additional injunctive
relief as to them.
13. Edward Mishan is an individual doing business as E. Mishan and Sons, Inc.,
Emson, QX Telecom, LLC., Wellquest, Inc., WQ Long Distance, QXT and ABD Long
Distance. The various entities under which Mishan does business (the “Mishan
Companies”) are telemarketers. Those entities have fraudulently telemarketed worthless
health care products and services, prepaid long distance calling cards and long distance
telephone access. Mishan and Wellquest International were defendants in an action
brought by the Federal Trade Commission in the United States District Court for the
Central District of California, alleging, inter alia, telemarketing fraud. The action was
concluded by entry of a Stipulated Consent Decree.
14. Platinum Benefit Group and related entities are telemarketers. They were
identified by the Attorneys General of North Carolina, Ohio, Florida, Illinois and
Vermont as fraudulent telemarketers in an action brought against Amerinet, their
payment processor.
15. David Giorgione is the president of Platinum Benefit Group
16. Vexedle d/b/a IDINS, is a telemarketer located in Arizona, which has taken
unauthorized payments from consumer checking accounts allegedly for identity theft
protection.
17. RxSmart is a telemarketer with a mail-drop in Champlain, New York, on the
Canadian border, and has taken unauthorized payments from consumer checking
accounts.
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JURISDICTION AND VENUE
19. Plaintiff brings this action pursuant to RICO, 18 U.S.C. §1964(c), which
confers jurisdiction upon this Court over the subject matter of this action. The Court also
has jurisdiction over the subject matter pursuant to 28 U.S.C. §1331 in that this action
arises under the laws of the United States.
20. Venue in this district is proper pursuant to 28 U.S.C. §1391(b)(2) because a
substantial part of the events and omissions giving rise to the claims of plaintiff and the
Class occurred in this district. Venue is also proper pursuant to 18 U.S.C. §1965 because
all defendants, with the possible exception of defendants Zions Bank, MP and Teledraft,
reside, are found and/or transact their affairs in this district and the ends of justice require
that all defendants be sued in this district.
BACKGROUND FACTS
21. Telemarketing refers to the professional use of the telephone to advertise,
market and/or provide services to both individual consumers and businesses.
22. By its nature, telemarketing is susceptible to being used by unscrupulous
persons and companies, including the “Telemarketers” (the enterprises and persons
identified in paragraphs 11-18 hereof), to defraud consumers, such as plaintiff and the
members of the Class, including schemes to obtain information concerning their bank
accounts, thereby allowing unscrupulous telemarketers, including the Telemarketers, to
take money from the victims’ bank accounts and transfer it to themselves. Fraudulent
telemarketing schemes begin with unsolicited telephone calls made in interstate and
foreign commerce. During the calls, victims, such as plaintiff and the members of the
Class, are induced, through misrepresentations and false promises of goods and services,
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to provide unscrupulous telemarketers, including the Telemarketers, with personal bank
account information. Unscrupulous telemarketers, including the Telemarketers, use false,
misleading and high-pressure sales scripts to induce victims such as plaintiff and the
members of the Class to agree to purchase products and services that are either non-
existent or of negligible or wildly exaggerated value. The unscrupulous telemarketers,
including the Telemarketers, then transmit the personal bank account information through
the United States mail and/or interstate wire and foreign wires to payment processors,
including defendants ND, MP and Teledraft, or use such information themselves to
execute ACH or remotely created check/demand draft transactions directly with banks,
including defendant Zions Bank. The most common victims of fraudulent telemarketers
are senior citizens. The AARP, the National Association of Attorneys General and the
Federal Trade Commission have estimated that 85 percent of the victims of fraudulent
telemarketing are age 65 or older.
23. Once having fraudulently obtained a consumer’s bank account information,
fraudulent telemarketers, including the Telemarketers, need a mechanism by which to
withdraw funds from the accounts of their victims.
24. To collect and receive money from the accounts of their victims, including
plaintiff and the members of the Class, fraudulent telemarketers, including the
Telemarketers, contract with payment processors, including defendants ND and MP and
defendant Teledraft or directly with banks such as defendant Zions Bank. Payment
processors establish an account in their own name or the name of their customer with a
bank and using information regarding victims’ bank accounts that is provided by the
telemarketers, collect payments from the victims into that account. After receiving funds
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from the victims into the account, the payment processor deducts a fee for itself and
transmits the balance to the telemarketer.
25. A telemarketer or payment processor can use one of two methods to obtain
payment based on the bank information of a consumer obtained and provided by a
telemarketer: (1) an electronic transfer through an Automated Clearing House debit
(“ACH”), or (2) a remotely created paper check/demand draft (“RCC”).
26. NACHA is an association of financial institutions and regional payment
systems representing more that 11,000 financial institutions, including, on information
and belief, defendant Zions Bank. Its primary responsibility is to develop and maintain
the operating rules and guidelines – NACHA Operating Rules – for the Automated
Clearing House Network (“ACH Network”).
27. The ACH Network is an electronic, batch-processing funds transfer system,
governed by the NACHA Operating Rules, that provides for the interbank clearing of
credit and debit payments, and is a reliable, low-cost alternative to paper checks. The
ACH Network is governed by one set of national operating rules by which the financial
institutions, including Zions Bank, have agreed to abide.
28. One ACH application, particularly applicable to payment processors and
telemarketers, is Telephone-Initiated Entry (“TEL”). This application is used to transmit
a single-entry consumer debit transaction when the consumer’s authorization is obtained
orally via the telephone. Under the NACHA Operating Rules, TEL entries can only be
transmitted when 1) there is an existing relationship between the Originator and the
consumer, or 2) there is not an existing relationship, but the consumer initiated the
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telephone call. Outbound telemarketing, such as that involved in this case, does not
satisfy either of those conditions.
29. The ACH system uses codes to identify the reason for returns. The return
codes include several for transactions that are unauthorized. The NACHA Operating
Rules require that a bank returning an ACH transaction as unauthorized obtain a Written
Statement Under Penalty of Perjury from the consumer customer prior to returning the
entry.
30. NACHA publishes industry return rates, both for total returns and for specific
reasons. In 2007, the national average return rate for all debit ACH transactions for all
reasons was 1.94%. In the same year, the national average return rate for unauthorized
ACH TEL transactions was 0.14%.
31. During its regular investigations, NACHA has determined that many of the
ACH entries returned as unauthorized are because a company debits a consumer without
having obtained the consumer’s authorization or a company obtains an authorization for a
single debit but initiates multiple debits. According to NACHA, there is a correlation
between high rates of entries returned as unauthorized and Originators who are not
complying with NACHA rules such as those for TEL transactions; high rates of entries
returned for unauthorized reasons or for other reasons, such as Insufficient Funds and
Uncollected Funds, should serve as a notice that there may be a problem with the
Originator’s practices; and any rate above the national average should trigger questions
concerning the Originator’s practices.
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32. According to NACHA, in addition to transactions returned as unauthorized,
there are likely others that consumers do not complain about. Consumers are often
embarrassed about being duped, or sometimes do not realize that they have been duped.
33. Because of the NACHA limitations on TEL entries, financial institutions such
as Zions Bank should not, although some including Zions Bank do, allow telemarketers
or payment processors serving telemarketers to enter ACH TEL entries. To the extent
they are precluded from using ACH entries, however, fraudulent telemarketers may use
RCCs as their payment device, which are not subject to the NACHA Operating Rules.
34. An RCC is an unsigned paper check that, in lieu of a signature, bears a printed
notice stating “authorized by drawer” or similar language. Payment processors, including
defendant Teledraft, create such drafts payable to the telemarketer, using the person’s
bank routing and account information as provided by the telemarketer, and deposit such
drafts in the payment processors’ or telemarketers’ accounts. The payment processor
also includes a legend stating that it is authorized by the person to prepare the RCC
without the requirement of a signature.
35. RCCs are well known to be used by unscrupulous telemarketers to perpetrate
consumer fraud. The Attorneys General of 35 states, the District of Columbia and of
American Samoa have called upon the Board of Governors of the Federal Reserve
System to eliminate such drafts because they are so frequently used to perpetrate fraud on
consumers.
36. Fraudulent telemarketers, including the Telemarketers, cannot obtain funds
from the checking accounts of consumers unless there is a bank that is willing to process
their ACH transactions or accept RCCs made out to them, notwithstanding that such
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ACH transactions violate the NACHA Operating Rules, and notwithstanding the high
rates of return for both ACH and RCC transactions which are strong indications of fraud.
Defendant Zions Bank has been one such bank for telemarketers, including the
Telemarketers.
37. Fraudulent telemarketers, including the Telemarketers, after obtaining funds
from the checking account of consumers, need to launder those funds and transfer them
out of the United States so as to place them beyond reach of law enforcement agencies
and consumers who seek to obtain restitution. They cannot do so unless there are banks
willing to accept their instructions to wire funds to entities and persons outside the
jurisdiction of the United States. The Bank Defendants have been such banks for
telemarketers, including the Telemarketers.
FACTS GIVING RISE TO THIS ACTION
38. Fraudulent telemarketers, including the Telemarketers, have during the class
period engaged in fraudulent telemarketing schemes whereby they were able to obtain the
bank account information of their victims, including plaintiff and the members of the
Class, necessary to have ACH TEL entries or RCCs prepared on the victims’ accounts.
39. As discussed above, each of the Telemarketers has been the subject of a
successful government consumer fraud action or has been the subject of numerous
publicly available consumer complaints. The fraudulent activities of telemarketers,
including the Telemarketers, have included, but are not limited to: (a) misrepresenting
that they were calling from a United States government agency that was attempting to
make a direct deposit into the victim’s checking account and therefore needed the
victim’s bank account information and then debiting the account for a so-called
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processing fee; (b) misusing the names of legitimate businesses; (c) obtaining incomplete
recorded authorizations that were then altered to make it appear that the victim had
agreed to purchase a product or service, thereby allowing the victim’s account to be
debited; (d) by misrepresenting the existence and/or the nature or value of a particular
product or service, when in fact the product or service was non-existent or had no or
negligible value; and (e) by representing that the victim would have a period of time
within which to cancel a transaction, but then debiting the victim’s account before that
time had expired.
40. On information and belief, telemarketers, including the NHS/PHS group, have
also engaged in “slamming”. “Slamming” is a form of fraud whereby a telemarketer
purchases or otherwise acquires a list of consumers along with the consumer’s bank
account information from another telemarketer or entity that engages in the business of
buying and selling such lists. Such lists are often referred to as “full data leads”. Using
the customer account information gleaned from the full data leads, persons are able to
misrepresent to consumers that they are simply trying to verify or confirm that
information, or to initiate ACH TEL or RCC transactions without ever having contact
with the victim. On information and belief, NHS provided such full data leads, either
directly or through a third party, to Galaxy, which also debited the accounts of members
of the Class.
FACTS AS TO PLAINTIFF
41. In or about November 2007, Mr. Reyes received a phone call from a
representative of NHS telling him that he was eligible for a government grant and that the
caller needed his bank account information in order to have the grant deposited directly to
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his account. The representative of NHS did not tell Mr. Reyes that there was any charge
in connection with the grant or that any money would be debited from his account.
42. NHS was a new name for a fraudulent telemarketing scheme operated by
Nicole Bertrand and Barry Kirstein under the name First National Healthcare Benefits,
which had fraudulently and without authorization withdrawn funds from Mr. Reyes’
account through a payment processor, YMA, and which were reimbursed to him in the
Wachovia case identified in paragraphs 5 and 54(j) hereof.
43. Having fraudulently obtained Mr. Reyes’ checking account information, on
November 17, 2007, NHS initiated an ACH debit entry from his account at Commerce
Bank in the amount of $29.95, which, on information and belief, was processed for NHS
by defendant MP through defendant Zions Bank, and which resulted in a credit entry in
an account at defendant Zions Bank. On November 29, 2007, NHS initiated a second
ACH debit entry from his Commerce Bank account in the amount of $299.95, which, on
information and belief, was processed for NHS by defendant MP through defendant
Zions Bank, and which resulted in a credit entry in an account at defendant Zions Bank.
Neither of the transactions was authorized by Mr. Reyes, nor did Mr. Reyes receive a
government grant or any other consideration from NHS. When Mr. Reyes called the
number he had been given on the phone by NHS, he had difficulty reaching anyone.
When he finally did, he was played back a fraudulently altered “verification” recording
purporting to prove that he had authorized the charges to his account. The two debit
entries caused Mr. Reyes’ account at Commerce to be overdrawn, resulting in at least two
overdraft fees being charged by Commerce each in the amount of $35. The total damages
caused to Mr, Reyes by NHS are at least $399.90.
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CLASS ACTION ALLEGATIONS
44. The Class consists of all individuals in the United States as to whom ACH
debit entries or RCC drafts on their accounts were prepared by defendants ND, MP or
Teledraft or were credited to accounts at defendants Zions Bank, National Penn,
Harleysville, Wells Fargo or Wachovia during the four-year period immediately
preceding the filing of this action and finally charged to the class members’ bank
accounts by a telemarketer, including but not limited to the Telemarketers, or pursuant to
information provided to defendants ND, MP or Teledraft by telemarketers, including but
not limited to the Telemarketers, or who otherwise incurred any bank charges as a
consequence of such ACH debit entries or RCCs.
45. The Class is so numerous that joinder of all members is impracticable. NHS
alone had over 15,000 returns of unauthorized ACH debits. Data-bases maintained by MP
for NHS and PHS contain over 6958 unique consumer records, and a Teledraft data-base
contains approximately 29,374 unique consumer records.
47. Plaintiff is an adequate representative of the Class, and his claims are typical
of those of the Class. There are no issues or defenses unique to plaintiff, and plaintiff has
no conflicts with the members of the Class. Counsel for plaintiff are experienced in the
prosecution of complex class action litigation and have appeared as counsel and lead
counsel in nationwide class actions in courts across the United States, including Faloney
et al v. Wachovia Bank, N.A., No.07 CV 1455, United States District Court for the
Eastern District of Pennsylvania, an action against another national bank for facilitating
telemarketing fraud in which class members received 100% restitution.
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48. There are questions of law and fact that are common to the Class and which
predominate over any issues affecting only individual members. Common questions
include the use by the telemarketers of phones, wire and mail to fraudulently obtain
account information (“access devices”) from the members of the Class; the transmission
of such unauthorized access devices by phone, wire and mail directly or indirectly to the
ND, MP and/or Teledraft and Zions Bank; the possession by ND, MP and Teledraft and
Zions Bank of those unauthorized access devices; the use by Zions Bank of interstate
wires to create ACH transactions whereby funds were removed from the accounts of
plaintiff and the members of the Class; the use of interstate wires by ND and/or MP to
wire funds to the Bank Defendants; the existence of the enterprises consisting of an
“association-in-fact” alleged in this complaint; the money laundering by the Bank
Defendants of funds taken from the Class members’ accounts; the participation of the
defendants in the operation and management of those enterprises consisting of
“associations-in-fact” through a pattern of racketeering in violation of 18 U.S.C.
§1962(c); and the participation of MP/ND, Zions, the Bank Defendants and Teledraft in
a conspiracy to violate 18 U.S.C. §1962(c) in violation of 18 U.S.C. §1962(d).
49. A class action is superior to other available methods for the fair and efficient
adjudication of this controversy. The individual claims of the Class members are too
small to warrant their bringing individual actions. To the best of plaintiff’s knowledge,
there is no other action brought on behalf of the Class against these defendants. The FTC
action against NHS, et al described in paragraph 12 hereof was brought in this district,
and it is therefore desirable for this litigation to proceed in the this Court, which is
familiar with some of the underlying facts relating to the telemarketing fraud involved in
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this case. There should be no difficulties in the management of this case as a class action
since much of the information needed to identify the Class members and the amounts
taken from their accounts should be available from the telemarketers, the Payment
Processors and from defendants, including the data-bases maintained by MP and
Teledraft.
THE RICO VIOLATIONS
Count I: Violation of 18 U.S.C. §1962(c) by Zions Bank and MP/ND
50. Defendants Zions Bank and MP/ND are an “enterprise” consisting of an
“association-in-fact” as those terms are used in 18 U.S.C. §1961(4) (the “Telemarketing
Facilitation Enterprise”). Zions Bank and MP/ND had a common purpose – to earn fees
for facilitating fraudulent telemarketing schemes; they had a relationship through their
mutual customers, the telemarketers; and the association-in-fact enterprise had a
longevity sufficient to permit Zion Bank and MP/ND to pursue the enterprise’s purposes.
Each played a distinct role in the operation, management and control of the enterprise
through separate and distinct patterns of racketeering activity. MP/ND was a payment
processor, not a bank, and received, possessed and processed unauthorized access devices
(i.e. the bank account information fraudulently obtained by its telemarketer customers),
using interstate wires. Zions Bank, a national bank, but not a payment processor, then
used those processed access devices to initiate by interstate wire ACH transactions by
which the accounts of plaintiff and the members of the Class were debited. MP/ND then
directed the interstate wire transfer of those funds to the Bank Defendants as part of the
scheme of the telemarketers to launder them. MP/ND and Zions Bank were separately
compensated for the respective services they each provided to the telemarketers.
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51. Zions Bank and MP/ND is each a “person” as that term is used in 18 U.S.C.
§1961(3). Each participated in the operation, management and control of the
Telemarketing Facilitation Enterprise through a pattern of racketeering activity.
52. Defendants Zions Bank and MP/ND each knew, or deliberately closed its eyes
to what otherwise would have been obvious to it, namely that its telemarketers clients
were engaged in fraudulent activity and that by providing payment processing and
banking services to them, it was facilitating that unlawful conduct.
53. Defendants Zions Bank and MP/ND each was objectively aware of the high
probability that the telemarketers were engaged in fraudulent activity, and could have
recognized the likelihood of the illicit conduct, but deliberately avoided learning the
facts.
54. The facts known to defendants Zions Bank and MP/ND or as to which they
closed their eyes and deliberately avoided learning, include, but are not limited to:
a. Zions Bank had an obligation as a matter of law and regulation to know
its customers, including the fact that the clients of MP/ND were telemarketers, involved
in making outbound telemarketing calls. In 2007, the Federal Reserve and Office of the
Comptroller of the Currency (“OCC”) republished the Bank Secrecy Act/Anti-Money
Laundering Examination Manual (the “Manual”) in which an entire chapter was related
to Third Party Payment Processors. The Manual warned banks, including Zions Bank,
that “If a bank has not implemented an adequate processor approval program that goes
beyond credit risk management, it could be vulnerable to processing illict …
transactions” and that “some processors may be vulnerable to money laundering, identity
theft, and fraud schemes.” Key cautions in the Manual included understanding the
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payment processor’s merchant base, i.e., the telemarketers, and awareness of their
“charge-back history.” They also warned that telemarketers were, with respect to possible
money laundering, high-risk accounts.
b. As early as 1996, the Director of the Bureau of Competition of the FTC
described RCCs as the “favorite method of fraudulent actors for taking consumers’
money through fraudulent marketing and other scams.” In March of 2008, defendant MP
recommended that defendant Teledraft begin processing for NHS/PHS using RCCs.
c. OCC Bulletin 2006-39 (9/1/06), dealing with ACH activities, contains a
section separately dealing with “Third-Party Senders”, i.e. payment processors such as
MP/ND, which requires that “Banks that initiate ACH transactions for third-party senders
should know at a minimum, for which originators [in this case telemarketers] they are
initiating entries into the ACH network. Thus, banks should require third-party senders to
provide information on their originator customers such as the originator’s name …
principal business activity, and geographic location. Also, before originating transactions,
a bank should verify (directly or through a third-party sender) that the originator is
operating a legitimate business.”
d. Mishan and one or more of the Mishan Companies had been defendants
in an action brought by the Federal Trade Commission, charging them with telemarketing
fraud.
e. Bertrand was a defendant in an action brought by the New York
Attorney General charging her with telemarketing fraud, and was subject to a permanent
injunction and criminal and civil contempt orders in that case.
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f. NHS in a single month had an unauthorized return rate on ACH Tel
transactions far in excess of the national average. Since 2007, it has had over 15,000
ACH transactions returned as unauthorized, each of which required a sworn affidavit
from the party claiming it was unauthorized. In three months of 2007, NHS had an ACH
return rate exceeding 10%, 50 times the national average. In two months of 2007, it had a
total return rate exceeding 40%, 20 times the national average.
g. There is a correlation between high rates of ACH entries returned as
unauthorized and Originators, such as the Telemarketers, who are not complying with
NACHA rules.
h. High rates of ACH entries returned as unauthorized, or for other reasons
such as insufficient funds and uncollected funds, should serve as notice that there may be
a problem with the Originator’s practices.
i. Processing and initiating ACH Tel transactions on behalf of outbound
telemarketers, including the Telemarketers, breached Zions Bank’s obligations under the
NACHA Operating Rules.
j.Wachovia Bank, another national bank, was a defendant in an action
alleging that it had facilitated telemarketing fraud in a manner similar to that alleged in
this Complaint, a case which received widespread national publicity. Wachovia was
eventually censured by the OCC for its conduct which the OCC described as “unsafe”
and “unsound” practices, an action which also received widespread publicity.
k. In an action brought by the United States Department of Justice, a
payment processor, Payment Processing Center, LLC (“PPC”) was preliminarily and then
permanently enjoyed from processing RCCs for fraudulent telemarketers. In an action by
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a consortium of state Attorneys General, Amerinet, also a payment processor, was
compelled to make refunds to victims of fraudulent telemarketers serviced by it.
Nonetheless, after that injunctive relief was granted and those refunds compelled,
MP/ND and Zions Bank provided payment processing and banking services respectively
to one or more of the fraudulent telemarketers served by PPC or its predecessor Netchex,
and/or Amerinet, including Nicole Bertrand, Barry Kirstein and one or more of the
NHS/PHS telemarketers and/or their predecessors, and one or more of the Mishan
Companies.
l.Zions Bank’s own customers had complained to it of unauthorized debits
against their accounts initiated by fraudulent telemarketers and/or payment processors.
m. MP, after terminating its relationship with NHS and PHS due to a high
rate of ACH returns, nonetheless enthusiastically recommended them to Teledraft as
customers and even recommended that Teledraft provide them with an alternate means of
accessing consumer accounts, i.e. RCCs.
n. In September 2005, the “NACHA Risk Management News”, a
publication widely circulated in the banking community, published an article captioned
“Iowa Attorney General Action Against ODFI In Telemarketing Fraud Case.” The article
reported a settlement between the Iowa Attorney General and an Iowa Bank “that
processed electronic withdrawals from the bank accounts of Iowa victims of
telemarketing schemes,” including agreement to a series of remedial actions and payment
of $200,000. The article quoted the Iowa Attorney General; “The law requires banks not
to assist any telemarketer when the bank knows or should have known that the
telemarketer is engaged in fraudulent conduct.”
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55. The account numbers and bank routing information fraudulently obtained
from plaintiff and the members of the Class by the telemarketers and transmitted to
defendants MP/ND are “access devices” as that term is defined in 18 U.S.C. §1029(e)(1).
Those access devices were obtained by the telemarketers with intent to defraud as alleged
in paragraph 22 hereof which is incorporated herein by reference. They were, therefore,
“unauthorized access devices” as that phrase is defined in 18 U.S.C. §1029(e)(3).
56. The telemarketers, knowingly and with intent to defraud, trafficked in and
used many thousands of unauthorized access devices identified in paragraph 55 hereof
during a one year period and by such conduct obtained funds from plaintiff and the
members of the Class aggregating in the thousands, if not more, of dollars. The
telemarketers, with intent to defraud, also possessed many thousands of unauthorized
access devices as described in paragraph 55 hereof.
57. The conduct of the telemarketers constituted multiple violations of 18 U.S.C.
§§1029(a)(2) and (a)(3).
58. For the reasons stated in paragraphs 50 and 52-54 above, at least as early as
January 2007 and continuing until September 2009, defendants Zions Bank and MP/ND
conspired with the telemarketers and Teledraft to commit violations of 18 U.S.C.
§§1029(a)(2) and (a)(3), which conspiracy is a violation of 18 U.S.C. §1029(b)(2).
Violation of 18 U.S.C. §1029(b)(2) is a predicate offense for purposes of 18 U.S.C.
§1962(c).
59. For the reasons stated in paragraphs 50 and 52-54 above, beginning at least as
early as January 2007 and continuing until at least March, 2008, defendant MP,
knowingly and with intent to defraud, possessed more than 15 unauthorized access
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devices received from the telemarketers, and effected transactions using those
unauthorized access devices to receive payment in the many thousands of dollars within a
one year period, in violation of 18 U.S.C. §§1029(a)(2) and (3), which are predicate
offenses for purposes of 18 U.S.C. §1962(c).
60. For the reasons stated in paragraphs 50 and 52-54 above, beginning at least as
early as January 2007 and continuing at least March 2008, defendants MP/ND received
the unauthorized access devices from the telemarketers by interstate wire, as part of a
scheme and artifice to defraud, in violation of 18 U.S.C. §1343, which is a predicate
offense for purposes of 18 U.S.C. §1962(c).
61. For the reasons stated in paragraphs 50 and 52-54 above, beginning at least as
early as January 2007 and continuing at least until March 2008, defendant Zions Bank
initiated ACH transactions by interstate wire in order to debit the accounts of plaintiffs
and the members of the Class as part of a scheme and artifice to defraud, in violation of
18 U.S.C. §1343, which is a predicate offense for purposes of 18 U.S.C. §1962(c).
62. For the reasons stated in paragraphs 50 and 52-54 above, beginning at least as
early as January 2007 and continuing until at least March 2008, defendant MP/ND caused
funds fraudulently obtained from the accounts of plaintiffs and the members of the Class
to be transferred by interstate wire to the Bank Defendants, as part of a scheme and
artifice to defraud, in violation of 18 U.S.C. §1343, which is a predicate offense for
purposes of 18 U.S.C. §1962(c).
63. For the reasons stated in paragraphs 50 and 52-54 above, with intent to
defraud, defendants MP/ND caused sums in excess of $10,000 to be wired to the Bank
Defendants for the accounts of one or more of their telemarketer clients received from
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unlawful activities by the telemarketers (including mail fraud, wire fraud and access
device fraud) in order to promote the carrying on of those activities which are “specified”
crimes for purposes of 18 U.S.C. §1956, and to conceal and disguise the ownership and
control of those funds, all in violation of 18 U.S.C. §§1956 and 1957, both of which are
predicate offenses for purposes of 18 U.S.C. §1962(c).
64. The activities of the Telemarketing Facilitation Enterprise identified in
paragraph 50 hereof affected interstate and foreign commerce. The fraudulent activities
of defendants MP/ND and Zions Bank were directed to plaintiff and members of the
Class throughout the United States, the ACH debits and RCCs prepared by or on behalf
of the telemarketers were presented by defendant Zions and Teledraft for payment to
banks throughout the United States, the funds taken from plaintiff and the members of the
Class were caused to be wire transferred to the Bank Defendants in interstate commerce,
and the Bank Defendants wire transferred those funds in foreign commerce to accounts
and persons in the Caribbean, Canada and India.
65. The banking and payment processing services provided by defendants Zions
Bank and MP/ND respectively to the telemarketers were an essential element in the
scheme to fraudulently obtain funds from the bank accounts of plaintiff and the members
of the Class.
66. Plaintiff and the members of the Class were the intended targets of the scheme
to violate RICO, 18 U.S.C. §1962(c) alleged herein, and the participation of defendants
MP/ND and Zions Bank facilitated that scheme and caused financial injury to plaintiff
and the members of the Class which was a reasonably foreseeable consequence of such
conduct.
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Count II: Alternative Violation of 18 U.S.C. §1962(c) by Zions Bank and MP/ND
67. Defendants Zions Bank, MP/ND and their telemarketer clients, including, but
not limited to, the Telemarketers, are an “enterprise” consisting of an “association-in-
fact” as those terms are used in 18 U.S.C. §1961(4) (the “Telemarketing Fraud
Enterprise”. The members of the enterprise had:
(a) a common purpose – to earn income by engaging in and facilitating
fraudulent telemarketing schemes;
(b) a relationship among themselves as alleged in paragraph 50 hereof, and
the among telemarketers through the use of a common pattern of deception, use of
common vendors of “products” and “services”, offering of a relatively small universe of
common non-existent or worthless “products” and “services” such as government grants,
travel clubs, discount health plans and phone cards, and providing to each other and third
party vendors and then using full data leads, and through using Zions Bank and MP/ND;
and
(c) the association-in fact enterprise had a longevity sufficient to permit
them to pursue the enterprise’s purposes.
(d). On information and belief, it was well known to telemarketers,
including the Telemarketers, that MP was a payment processor that, despite their
fraudulent conduct, history of telemarketing fraud and high rates of returns as
unauthorized, would accept them as customers and process ACH transactions on their
behalf.
(e). On information and belief, it was well known to telemarketers,
including the Telemarketers, that Zions Bank was a bank that, despite their fraudulent
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conduct, history of telemarketing fraud and high rates of returns as unauthorized, would
accept them as customers and initiate ACH transactions on their behalf, in disregard of
the NACHA Operating Rules by which it was bound.
(f). All of the participants in the enterprise knew, or in the case of Zions
Bank and MP/ND alternatively deliberately closed their eyes to, the fact that the
fraudulent schemes of the telemarketers could not be accomplished without all of their
participation.
(g). the allegations of paragraph 40 are incorporated herein by reference.
68. Zions Bank and MP/ND is each a “person” as that term is used in 18 U.S.C.
§1961(3). Each participated in the operation, management and control of the
Telemarketing Fraud Enterprise through a pattern of racketeering activity.
69. The allegations of paragraphs 50 and 52 through 66 hereof are incorporated by
reference.
Count III: Second Alternative Violation of 18 U.S.C. §1962(c) by Zions Bank and
MP/ND
70. Defendants Zions Bank, MP/ND, their telemarketer clients and the Bank
Defendants are an “enterprise” consisting of an “association-in-fact” as those terms are
used in 18 U.S.C. §1961(4) (the “Telemarketing Money Laundering Enterprise”). They
had a common purpose – to earn income by engaging in and facilitating fraudulent
telemarketing schemes; they had a relationship as alleged in paragraphs 50 and 67 hereof
and through using the services of Zions Bank and MP/ND and the Bank Defendants; and
the association-in fact enterprise had a longevity sufficient to permit them to pursue the
enterprise’s purposes.
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(a). On information and belief, it was well known to telemarketers,
including the Telemarketers, that MP was a payment processor that, despite their
fraudulent conduct, history of telemarketing fraud and high rates of returns as
unauthorized, would accept them as customers and process ACH transactions on their
behalf.
(b). On information and belief, it was well known to telemarketers,
including the Telemarketers, that Zions Bank was a bank that, despite their fraudulent
conduct, history of telemarketing fraud and high rates of returns as unauthorized, would
accept them as customers and initiate ACH transactions on their behalf, in disregard of
the NACHA Operating Rules by which it was bound.
(c). On information and belief, it was well know to telemarketers,
including one or more of the Telemarketers, that, despite the fact that they were
considered high risk clients with respect to money-laundering, and that they were
regularly wiring money to the Caribbean, India and Canada, the Bank Defendants would
comply with instructions to wire funds in their accounts to accounts in the Caribbean,
India and Canada to facilitate their laundering of the money fraudulently obtained from
plaintiff and the members of the Class.
(d). All of the participants in the enterprise knew, or in the case of Zions
Bank, MP/ND and the Bank Defendants alternatively deliberately closed their eyes to, the
fact that the fraudulent schemes of the telemarketers could not be accomplished without
all of their participation.
(e). The allegations of paragraph 40 hereof are incorporated by reference.
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71. Zions Bank and MP/ND is each a “person” as that term is used in 18 U.S.C.
§1961(3). Each participated in the operation, management and control of the
Telemarketing Money Laundering Enterprise through a pattern of racketeering activity.
. 72. The allegations of paragraphs 10. 50 and 52 through 66 hereof are
incorporated by reference.
Count IV: Violation of 18 U.S.C. §1962(d) by Zions Bank and MP/ND
73. The allegations of paragraph 67 are incorporated herein by reference.
74. Defendants Zions Bank and MP/ND conspired with their telemarketer clients,
including the Telemarketers, to violate 18 U.S.C. §1962(c), in violation of 18
U.S.C.§1962(d).
75. The telemarketers, including the Telemarketers, are “persons” as that term is
used in 18 U.S.C.§1961(3).
76. The allegations of paragraph 55-57 hereof are incorporated herein by
reference The conduct of the telemarketers, including the Telemarketers, in their
participation in the operation, management and control of the Telemarketing Fraud
Enterprise identified herein, constituted multiple violations of 18 U.S.C. §§1029(a)(2)
and (a)(3), which are predicate offenses for purposes of 18 U.S.C. §1962(c).
77. In the operation, management and control of the Telemarketing Fraud
Enterprise identified herein, the telemarketers, as part of a scheme and artifice to defraud:
(a). communicated with plaintiff and the members of the Class by
interstate and foreign telephone wires, including telephone calls to plaintiff Reyes in
October or November 2007, to fraudulently obtain from them their bank account
information, in violation of 18 U.S.C. §1343.
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(b). fraudulently initiated ACH, including ACH TEL, debit entries by
interstate wire against the accounts of plaintiff and the members of the Class, including
those described in paragraph 43 hereof, in violation of 18 U.S.C. §1343.
(c). transmitted the bank account information they had fraudulently
obtained from plaintiff and the members of the Class by interstate wire to the Payment
Processors, in violation of 18 U.S.C. §1343.
(d). wire transferred the funds fraudulently obtained from plaintiff and the
members of the Class to the Bank Defendants who in turn wire transferred them to
offshore accounts in the Caribbean, Canada and India, often in names other than those of
the Telemarketers, in violation of 18 U.S.C. §1343.
(e). Violation of 18 U.S.C. §1343 is a predicate offense for purposes of 18
U.S.C. §1962(c).
78. In the operation, management and control of the Telemarketing Fraud
Enterprise identified herein, the telemarketers, as part of a scheme and artifice to
defraud:.
(a). following the telephone contacts in which they fraudulently obtained
the bank account information from plaintiff and the members of the Class, communicated
with them by United States Mail, sending them written materials falsely misrepresenting
that they had given authorization for the withdrawals from their accounts, and providing
false and misleading information as to the time in which plaintiff and the members of the
Class could cancel their alleged purchases or how they could seek refunds, in violation of
18 U.S.C. §1341.
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(b). Violation of 18 U.S.C. §1341 is a predicate offense for purposes of 18
U.S.C. §1962(c).
79. In the operation, management and control of the Telemarketing Fraud
Enterprise identified herein, the telemarketers, including the Telemarketers, directed the
transfer of funds in excess of $10,000, fraudulently obtained from the accounts of
plaintiff and the members of the Class, to offshore Caribbean, Canadian and Indian
accounts, in some instances in the name of an entity other than the telemarketer, in an
attempt to conceal or disguise the source, ownership and control of those funds, in
violation of 18 U.S.C. §§1956 and 1957.
80. Violations of 18 U.S.C. §§1956 and 1957 are predicate offenses for purposes
of 18 U.S.C. §1962(c).
81. The allegations of paragraphs 52-54 hereof are incorporated by reference.
82. Zions Bank and MP/ND joined the conspiracy at least as early as January
2007 when MP opened accounts for one or more of the Telemarketers.
83. The banking and payment processing services provided by Zions Bank and
MP/ND to the Telemarketers were an essential element in the scheme to fraudulently
obtain funds from the bank accounts of plaintiff and the members of the Class.
84. Plaintiff and the members of the Class were the intended targets of the scheme
to violate RICO, 18 U.S.C. §1962(c) alleged herein, and the participation of Zions Band
and MP/ND in a conspiracy to facilitate that scheme, in violation of 18 U.S.C. §1962(d),
caused financial injury to plaintiff and the members of the Class which was a reasonably
foreseeable consequence of such conduct.
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Count V: Alternative Violation By Zions Bank and MP/ND Of RICO, 18 U.S.C.
§1962(d)
85. The allegations of paragraph 70 are incorporated herein by reference.
86. Defendants Zions Bank and MP/ND conspired with their telemarketer clients,
including the Telemarketers, and the Bank Defendants to violate 18 U.S.C. §1962(c), in
violation of 18 U.S.C.§1962(d).
87. The allegations of paragraphs 76 through 84 are incorporated herein by
reference.
Count VI: Violation By The Bank Defendants of 18 U.S.C.§1962(c)
88. The allegations of paragraph 70 are incorporated herein by reference.
89. Each of the Bank Defendants is a “person” as that term is used in 18 U.S.C.
§1961(3), and each participated in the operation, management and control of the
Telemarketing Money Laundering Enterprise alleged herein through a pattern of
racketeering activity.
90. The Bank Defendants knew, or deliberately closed their eyes to what
otherwise would have been obvious to them, namely that the telemarketers, including one
or more of the Telemarketers and the persons identified herein, were engaged in
fraudulent activity and that by providing banking services to them, they were facilitating
that unlawful conduct.
91. The Bank Defendants were objectively aware of the high probability that the
telemarketers, including one or more of the Telemarketers and persons identified herein,
were engaged in fraudulent activity, and could have recognized the likelihood of the
illicit conduct, but deliberately avoided learning the facts.
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92. The facts known to Bank Defendants, or as to which they closed their eyes
and deliberately avoided learning, include, but are not limited to:
a. The Bank Defendants had an obligation as a matter of law and
regulation to know their customers, including the fact that they were telemarketers
involved in making outbound telemarketing calls.
b. In 2006, the Federal Reserve and Office of the Comptroller of the
Currency published the Bank Secrecy Act/Anti-Money Laundering Examination Manual.
The Manual identified telemarketers as high risk accounts particularly with respect to
possible money laundering. The Manual also identified large or regular transfers of funds
to offshore or foreign accounts as red flags that money laundering was taking place.
c. The Manual also contains a separate section relating to “holding”
companies such as Wells Fargo & Co., National Bancshares, Inc. and Harleysville
National Corporation, providing that they are responsible for ensuring “that
comprehensive risk management policies, procedures and processes are in place across
the organization to address the entire organization’s spectrum of risk.”
d. The Bank Defendants nonetheless opened accounts for the
Telemarketers and regularly received transfers of funds into those accounts from the
Payment Processors.
e. The Bank Defendants regularly honored instructions from the
Telemarketers to make large transfers of funds in excess of $10,000 by wire to accounts
in the Caribbean, Canada and India, often to persons and entities other than the
Telemarketers, thereby facilitating money laundering by the Telemarketers, in violation
of 18 U.S.C. §§1956 and 1957.
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93. Violations of 18 U.S.C. §§1956 and 1957 are predicate offenses for purposes
of 18 U.S.C. §1962(c).
94. The activities of the Telemarketing Money Laundering Enterprise identified in
paragraph 70 hereof affected interstate and foreign commerce. The fraudulent activities
of defendants MP/ND and Zions Bank were directed to plaintiff and members of the
Class throughout the United States, the ACH debits prepared by or on behalf of the
telemarketers were presented by defendant Zions and Teledraft for payment to banks
throughout the United States, the funds taken from plaintiff and the members of the Class
were caused to be wire transferred to the Bank Defendants in interstate commerce, and
the Bank Defendants wire transferred those funds in foreign commerce to accounts and
persons in the Caribbean, Canada and India.
95. Plaintiff and the members of the Class were the intended targets of the scheme
to violate RICO, 18 U.S.C. §1962(c) alleged herein, and the participation of Zions Band
and MP/ND in a conspiracy to facilitate that scheme, in violation of 18 U.S.C. §1962(d),
caused financial injury to plaintiff and the members of the Class which was a reasonably
foreseeable consequence of such conduct.
Count VII: Violation By The Bank Defendants Of 18 U.S.C. §1962(d)
96. The allegations of paragraph 67 are incorporated herein by reference.
97. The allegations of paragraphs 68-69 are incorporated herein by reference.
98. The Bank Defendants conspired with Zions Bank, MP/ND and the
telemarketers, including the Telemarketers, to violate 18 U.S.C. §1962(c) in violation of
18 U.S.C. §1962(d).
99. The allegations of paragraphs 90 through 92 are incorporated by reference.
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100. The Bank Defendants joined the conspiracy at least as early as January 2008
when they opened accounts for one or more of the Telemarketers.
101. The banking services provided by the Bank Defendants to the Telemarketers
were an essential element in the scheme to fraudulently obtain funds from the bank
accounts of plaintiff and the members of the Class and place them beyond the reach of
their recovery by plaintiff and the members of the Class.
102. Plaintiff and the members of the Class were the intended targets of the
scheme to violate RICO, 18 U.S.C. §1962(c) alleged herein, and the participation of the
Bank Defendants in a conspiracy to facilitate that scheme, in violation of 18 U.S.C.
§1962(d), caused financial injury to plaintiff and the members of the Class which was a
reasonably foreseeable consequence of such conduct.
Count VIII: Violation By Teledraft Of 18 U.S.C. §1962(d)
103. The allegations of paragraph 67 hereof are incorporated by reference.
104. The allegations of paragraph 75 are incorporated herein by reference.
105. The telemarketers, including the Telemarketers, participated in the operation,
management and control of the enterprise identified in paragraph 67 hereof through a
pattern of racketeering activity. The allegations of paragraphs 55-57 and 77-80 hereof are
incorporated by reference.
106. Teledraft, in violation of 18 U.S.C. §1962(d), joined the conspiracy alleged
in Count V hereof to violate 18 U.S.C. §1962(c) when it took the place of MP/ND as the
payment processor for fraudulent telemarketers serviced by MP, including, but not
limited to, the NHS/PHS group which had defrauded plaintiff Reyes.
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107. Teledraft joined the conspiracy at least as early as January 2008 when it
began processing RCCs for the NHS/PHS group on the recommendation of MP even
though it was also told by MP that the rate of returns as unauthorized for ACH
transactions initiated by NHS/PHS was 2.9%, well above the new 1% limit imposed by
NACHA.
108. Teledraft knew, or deliberately closed its eyes to what otherwise would have
been obvious to it, namely that the telemarketers, including the Telemarketers, and the
persons identified herein were engaged in fraudulent activity and that by providing
payment processing services to them, it was facilitating that unlawful conduct.
109. Teledraft was objectively aware of the high probability that the
Telemarketers and the persons identified herein were engaged in fraudulent activity, and
could have recognized the likelihood of the illicit conduct, but deliberately avoided
learning the facts.
110. The facts known to Teledraft, or as to which it closed its eyes and
deliberately avoided learning, include, but are not limited to:
a. As early as 1996, the Director of the Bureau of Competition of the FTC
described RCCs as the “favorite method of fraudulent actors for taking consumers’
money through fraudulent marketing and other scams.” In March of 2008, PHS began
using RCCs processed by defendant Teledraft.
b. Bertrand was a defendant in an action brought by the New York
Attorney General charging her with telemarketing fraud, and was subject to a permanent
injunction and criminal and civil contempt orders in that case.
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c. NHS in a single month had an unauthorized return rate on ACH Tel
transactions far in excess of the national average. Since 2007, it has had over 15,000
ACH transactions returned as unauthorized, each of which required a sworn affidavit
from the party claiming it was unauthorized. In three months of 2007, NHS had an ACH
return rate exceeding 10%, 50 times the national average. In two months of 2007, it had a
total return rate exceeding 40%, 20 times the national average.
d. There is a correlation between high rates of ACH entries returned as
unauthorized and Originators, such as the Telemarketers, who are not complying with
NACHA rules.
e. High rates of ACH entries returned as unauthorized, or for other reasons
such as insufficient funds and uncollected funds, should serve as notice that there may be
a problem with the Originator’s practices.
f. In order to enable the Telemarketers to avoid the NACHA limits on
using ACH transactions, and pursuant to the suggestion from MP, Teledraft began
providing processing services to one or more of the Telemarketers using RCCs. RCCs,
also known as demand drafts, are well known to be used by unscrupulous telemarketers
to perpetrate consumer fraud. The Attorneys General of 35 states, the District of
Columbia and of American Samoa have called upon the Board of Governors of the
Federal Reserve System to eliminate such drafts because they are so frequently used to
perpetrate fraud on consumers.
g. In an action brought by the United States Department of Justice, a
payment processor, Payment Processing Center, LLC (“PPC”) was preliminarily and then
permanently enjoined from processing RCCs for fraudulent telemarketers.
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Notwithstanding that the PPC case received wide, national publicity, Teledraft continued
to provide such services to telemarketers, including one or more that had been customers
of PPC or its predecessor Netchex before it was shut down.
h. In an action brought by the Federal Trade Commission, a payment
processor, YMA, was charged by FTC with processing RCCs for fraudulent
telemarketers. Nonetheless, Teledraft continued to provide such services to telemarketers,
including one or more that had been customers of YMA.
i. Bertrand was a defendant in an action brought by the New York
Attorney General charging her with telemarketing fraud, and was subject to a permanent
injunction and criminal and civil contempt orders in that case.
j. In an action by a consortium of state Attorneys General, Amerinet, also
a payment processor, was compelled to make refunds to victims of fraudulent
telemarketers serviced by it, including telemarketers later serviced by Teledraft.
111. After processing RCCs for one or more of the Telemarketers, Teledraft, in
furtherance of the conspiracy, switched from RCCs to processing ACH transactions on
behalf of its telemarketer clients, including but not limited to the NHS/PHS group, in
direct violation of NACHA rules. At the time it did so, Teledraft was subject to a Final
Judgment in the United States District Court for the Southern District of Iowa, expressly
prohibiting it from doing so.
113. The payment processing services provided by Teledraft to the telemarketers,
including the Telemarketers, were an essential element in the scheme to fraudulently
obtain funds from the bank accounts of the members of the Class.
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114. Plaintiff and the members of the Class were the intended targets of the
scheme to violate RICO, 18 U.S.C. §1962(c) alleged herein, and the participation of
Teledraft in a conspiracy to facilitate that scheme, in violation of 18 U.S.C. §1962(d),
caused financial injury to plaintiff and the members of the Class which was a reasonably
foreseeable consequence of such conduct.
WHEREFORE, plaintiff demands judgment against defendants for threefold the
damages suffered by him and the members of the Class as a result of defendants’
unlawful conduct alleged herein, together with the costs of this action and a reasonable
attorney’s fee.
Plaintiff demands a jury trial.
January 26, 2010 LANGER, GROGAN & DIVER, P.C.
By: /s/ Judah I. Labovitz (I.D. No. 2984)
Howard Langer
Judah I. Labovitz
John Grogan
Edward A. Diver
Irv Ackelsberg
LANGER GROGAN & DIVER, P.C.
1717 Arch Street, Suite 4130
Philadelphia, PA 19103
(215) 320-5660 Phone
(215) 320-5703 Fax
Attorneys for Plaintiff
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